Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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In an article that reported on the Commerce Department's release of consumption data from September, the Washington Post told readers that: "consumer spending was stuck in the doldrums." Actually, the report showed a very high rate of spending relative to income. The saving rate fell from 5.6 percent in August to 5.3 percent in September. Historically the saving rate has averaged more than 8.0 percent, so consumers are currently spending at a high level relative to their income.
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Many prominent economists, including many with Nobel prizes, believe that Europe's economy, like the world economy, is desperately in need of more demand. Fortunately, the NYT is there to set them right.

It told readers today that social democratic parties in Europe must come to grips with the "necessity" of givebacks by workers. It would be great if the NYT could lay out its economic theory more fully so that those of us less expert in economics could understand how less demand in the current economy will spur growth and employment.

This new economic theory will make exciting reading if the NYT would share it with readers.

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That is what the NYT reported today, although it used somewhat different language. It told readers that:

"The group, which has a Dec. 1 deadline for recommending how to reduce the annual deficits swelling the federal debt, purposely has done little to date beyond five public hearings, and it has decided nothing lest any decisions leak and blow up in the flammable mix of a campaign year with control of Congress in the balance."

In a democracy, the purpose of elections is supposed to be to have voters determine issues like the future of Social Security and Medicare. According to this article, the members of this commission conspired to keep these issues outside of the election debate.

The article also tells readers that the co-chairs of the commission apparently misled the public in their prior statements. Both former Senator Alan Simpson and Erskine Bowles had given assurances that benefits would not be cut for current Social Security beneficiaries. According to this article, the commission is now considering changing the annual cost of living adjustment formula in a way that would reduce benefits. This reversal of a public commitment by the co-chairs should have been the main topic of a major news article.

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That's a question that anyone who doesn't work on Wall Street may want to ask after hearing a segment on WAMU's "Power Breakfast" in which the anchor told listeners that failing to cut Social Security and Medicare may be "fiddling why Rome burns." Add a comment

David Brooks, who made himself famous by turning the financial crisis into a "fiscal crisis," is back at game playing today. He outlines some of the main features of the Republicans' agenda assuming they get control of the House.

One of the items listed is the repeal of a provision in the health care reform bill that would require a business to file a 1099 every time they bought more than $600 of goods and services from an individual or business. While the Republicans will likely make this change, what Brooks doesn't tell readers is that Democrats would also. This was a provision that shoved into the lengthy bill that its proponents recognized as excessive almost immediately after it was passed. It would have already been repealed had the Republicans not blocked action in order to give themselves an election issue.

The other misleading item featured on Brooks' rather limited agenda for the Republicans is that they will take steps to make health care costs predictable for business. Brooks is revealing either his ignorance or his dishonesty with this one. He obviously is implying that the health care plan makes cost unpredictable for business. In fact, health care costs are already unpredictable for business.

Except in states where regulation prevents it, insurers can change what they charge businesses for health care as much as they feel like. While businesses can change insurers, this is time-consuming and the prices are very unpredictable (there are no price lists -- firms must go through an underwriting process). The Republicans have no plan that will make health care costs predictable for business. In fact, if they eliminate the insurance regulation in the health care reform bill then they will almost certainly be making costs less predictable.

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The answer is that they would get significant cuts in revenue. The Washington Post, which is known for its problems with logic and economics, never made this point as it discussed the possibility of a mass exodus of physicians from the Medicare program. The Post uncritically presented complaints about Medicare's compensation schedule from Cecil B. Wilson, the president of the American Medical Association that Medicare does not pay them enough money. (The article was headlined: "Physicians Face Painful Decision on Medicare.")

While it is possible that any individual physician can make more money by taking patients from private insurers rather than Medicare patients, physicians in aggregate could only make up for the revenue lost by not seeing Medicare patients if there was a large pool of individuals with money or high-paying insurers who do not currently have access to doctors. Of course, people with money in the United States are already seeing doctors, so if physicians en masse turned away from Medicare then they would simply have fewer patients. (This may be the painful decision referred to in the headline.)

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A Washington Post article discussing the risks associated with another round of quantitative easing raised the possibility that the Fed could lose its credibility if the program does not lead to the intended growth. It implies that the loss of credibility would be a major harm.

It is worth noting that the whole economic collapse came about because of the Fed's failure to notice and/or do anything about an $8 trillion housing bubble. Given this enormous failure, it is not clear how much credibility it currently enjoys among people who follow the economy.

The article also raises the risk that a precipitous fall in the dollar, "could be disastrous." It is difficult to see a scenario in which even the steepest falls in the dollar would be disastrous for the United States. U.S. exporters would suddenly become hyper-competitive (we still export $1 trillion a year in goods and services), while domestically produced goods would drive imports from the shelves. This scenario would likely be disastrous for our trading partners, which is why they would almost certainly intervene in currency markets to prevent the dollar from having a steep and sudden tumble.

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On Friday, Morning Edition featured a debate on trade between former Bush administration economist Mathew Slaughter and Thea Lee, an economist with the AFL-CIO. [Disclosure: Ms. Lee is a personal friend.] The discussion allowed Mr. Slaughter to have the last word, in which he proclaimed:

"One is most of the research to date that Thea cites has concluded that it's technology innovations of many kinds, that tend to favor demand for skilled workers that has put pressure on the wages of so many Americans.

So from a policy perspective, a question is, well, what do we want to do about that? Do you want to get rid of the computers that we've created over the past 30 or 40 years?"

Actually the economic research does not provide a compelling case that technology, rather than trade, has been the major factor driving inequality. The biggest rise in inequality between college and non-college educated workers occurred in the 80s, before the explosion of computerization and the uptick in productivity growth. In the 00s, there was no increase in the college-non-college pay gap. The only real gainers in that decade were workers with advance degree. This pattern in inequality is difficult to reconcile with a technology story.

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This is not a joke (at least not on my part). David Broder, the longtime columnist and reporter at a formerly respectable newspaper, quite explicitly suggested that fighting a war with Iran could be an effective way to boost the economy. Ignoring the idea that anyone should undertake war as an economic policy, Broder's economics is also a visit to loon tune land.

Broder tells readers:

"Can Obama harness the forces that might spur new growth? This is the key question for the next two years.

What are those forces? Essentially, there are two. One is the power of the business cycle, the tidal force that throughout history has dictated when the economy expands and when it contracts.

Economists struggle to analyze this, but they almost inevitably conclude that it cannot be rushed and almost resists political command. As the saying goes, the market will go where it is going to go.

In this regard, Obama has no advantage over any other pol. Even in analyzing the tidal force correctly, he cannot control it.

What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy."

Sorry Mr. Broder, outside of Fox on 15th the world does not work this way. War affects the economy the same way that other government spending affects the economy. It does not have some mystical impact as Broder seems to think.

If spending on war can provide jobs and lift the economy then so can spending on roads, weatherizing homes, or educating our kids. Yes, that's right, all the forms of stimulus spending that Broder derided so much because they add to the deficit will increase GDP and generate jobs just like the war that Broder is advocating (which will also add to the deficit).

So, we have two routes to prosperity. We can either build up our physical infrastructure and improve the skills and education of our workers or we can go kill Iranians. Broder has made it clear where he stands.

 

 

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The Washington Post (a.k.a. "Fox on 15th Street) clearly is on the opposite side of the Rally to Restore Sanity. In addition to David Broder's call for a war to stimulate the economy, Fred Hiatt, the paper's editorial page editor, demanded that President Obama lie to the American people.

In an article calling on President Obama to show leadership, Hiatt lists at the top of things that Obama would do if he were acting as a leader:

"He would tell Democrats that Social Security will go broke without reform." Of course this is not true. According to the Congressional Budget Office the program is fully solvent for the next 29 years with no changes whatsoever and with changes no larger than were put in place by the Greenspan commission in 1983 it can be kept solvent in the 22nd century.

Hiatt also complained that Obama has demonized business. This apparently stems from the difficulty of getting information in distant downturn Washington. Hiatt is apparently unaware of the fact that even as unemployment remains at near double-digit levels, corporate profits have returned to their pre-recession peak. In other words, business is doing just great under President Obama's leadership, even he has occasionally said some nasty things about them.

The column also included the bizarre assertion that: "unchecked, deficits will depress Americans' standard of living deficits threaten the country's standard of living." Of course by far the biggest threat to Americans' standard of living is the near double-digit unemployment that the country is now experiencing. The deficits being run today impose zero burden on the country since they harness resources that would otherwise be idle.

Over the long-term, the deficit problem is simply the problem of a broken U.S. health care system as every policy analyst knows. For some reason the Washington Post is determined to hide this simple fact. 

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Come on folks, we had the second largest inventory build-up in history. Pull that out and final demand grew at just a 0.6 percent annual rate.

Does anyone thing that inventories will continue to grow at this rate? This means that instead of adding to growth inventories will subtract from an economy that has almost no forward momentum. This is all GDP accounting 101. This should be the headline on the 3rd quarter numbers.

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Hell no, I'm not kidding. Here it is:

"the public's real anxiety is about values, not economics: the gnawing sense that Americans have become debt-addicted and self-indulgent."

This is really priceless. There are more than 25 million people unemployed, underemployed or who have given up looking for work altogether, but they are not concerned about economics. They are worried about values.

Okay, I will stop with the ridiculing of David Brooks, I know it's cheap fun. But, I do have to point out one other real winner in this column:

" Obama came to be defined by his emergency responses to the fiscal crisis." 

Yes, the column says "fiscal." Is this the mother of all Freudian slips or what? Brooks somehow wrote "fiscal," when he obviously meant "financial." Neither he nor his editor caught it on a second reading. You couldn't ask for a better example of the elite's fixation with making this into a fiscal crisis. The Wall Street boys wrecked the economy with their greed and ineptitude and now they intend to make ordinary workers pay for it with cuts to Social Security and Medicare. Talk about a crisis of values.

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Apparently the Post's reporters have been able to get access to information about France's pension laws. It wrongly reported that its pension cutbacks raised the retirement age from 60 to 62. In fact, this is the age of early retirement, which is comparable to the age 62 minimum in the United States for early Social Security benefits. The age for getting full benefits in France is rising from 65 to 67 under the new law.  Add a comment

News travels slowly in Washington, which is one reason that the Washington Post (a.k.a. Fox on 15th Street) is often so out of touch with events. Today columnist David Broder bemoaned the fact that Republican Representative Paul Ryan: "has assumed the role of analyst and provocateur. But no one on the Democratic bench has taken up his challenge, so it is a dialogue of the deaf at this point." 

Actually Democrats across the country have had a field day attacking Mr. Ryan's plans for privatizing Social Security and Medicare. The main problem is that the Republican leadership disowns these plans and insists that Mr. Ryan only speaks for himself. Perhaps one day this news will reach the Post.

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That's what NPR told listeners in its top of the hour news segment on Morning Edition (sorry, no link). The context was the possibility that a slowdown in foreclosures will reduce the supply of foreclosed homes being put on the market.

The Obama administration and other analysts have made this assertion, but it does defy basic economic logic and common sense. If a delay in the foreclosure process results in fewer homes being placed on the market then we should expect prices to rise, not fall. (This is compared to what would happen otherwise -- prices are falling now.) It is arguable whether such an increase would be good or bad, but reporters should try to get this one right even if the administration is having problems figuring out which way is up.

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The NYT had an excellent piece reporting on the debt burdens created by the collapse of the housing bubble in Spain. In Spain, unlike the U.S., mortgage debt typically follows the borrower even after they have lost their house. It is also very difficult to eliminate this debt through bankruptcy which means that many foreclosed homeowners will be saddled with mortgage debt until they die.

This is part of the reason that competent economists were concerned about housing bubbles in places like Spain. The European Central Bank (ECB), like the Fed, was not concerned. No one at the ECB lost their job, or even missed a promotion, as a result of its failure to take steps to counter the housing bubble in many euro zone countries.

It is also worth noting that debt has an effect on labor supply that is comparable to taxes. If a former homeowner knows that they will have to pay 20 percent of their income to a creditor then it reduces their incentive to work in the same way as if they had a 20 percentage point increase in their tax rate. This provides a powerful disincentive to work or an incentive to work off the books. The negative economic impact of harsh bankruptcy rules on economic output is rarely discussed.

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Morning Edition had an outstanding piece reporting on the role that a private prison company played in promoting Arizona's new immigration law. This is what reporters are supposed to do. Add a comment

It sure wouldn't be obvious that the cost of Social Security is one of the biggest problems facing the country. The program's projected shortfall over the next 75 years is equal to 0.5 percent of GDP, according to the Congressional Budget Office. This is less than one fourth of the increase in defense spending over the last decade. The share of health care spending in GDP is projected to rise by more than this every 3 years.

Dealing with global warming, a rapidly growing population of current and former prisoners, educating our children and maintaining our infrastructure all seem to pose much larger challenges than meeting the projected funding shortfall in Social Security. It is not clear why the NYT is telling readers that the growing costs of paying Social Security benefits are "one of the government’s biggest long-term challenges." The data do not appear to support this assertion.

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Low cost factory labor allows consumers to benefit from cheaper shoes, clothes, and toys. (These days it also means cheaper computers, aircraft parts, and windmill turbines.) Low paid immigrants from Latin America reduce the price of restaurant meals, hotel rooms, and child care.

The media routinely tout these benefits from globalization. The U.S. workers who may face cuts or unemployment as a consequence are told to get more training and learn to work harder.

This raises the question as why we don't see a similar celebration at the prospect of an increased supply of lawyers driving down the wages of lawyers and the price of legal services. In fact, a lengthy Slate piece on the increasing supply of lawyers never once mentioned the potential economic gains associated with lower prices to consumers. The prospect of too many lawyers driving down wages in the profession was presented as a problem that should trouble right-thinking right thinking people.

Well, the logic is the same. Those who celebrate the low cost imports from China and the benefits of cheap immigrant labor should also be celebrating the fact that legal services should be costing us less in the future, unless of course they are partial to the relatively affluent types who tend to up as lawyers.

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Peter Orszag, President Obama's former budget director, complained about the current antagonism between business and government commenting that "even if [it is] not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior."

First, let's just get some things in perspective. The profit share of domestic income is at a record high. The banks that were central to the economic carnage we are now experiencing have seen their profits and bonuses return to their housing bubble peaks?

What do these little boys and girls have to complain about? Are the politicians saying nasty things about them?

I suspect most people would be pretty damn happy if they still had a job after messing up as bad as these people did. Instead, the Goldman, Citi, Morgan Stanley Wall Street gang are earning tens of millions a year -- thanks to the taxpayer bailouts. And, they are upset about their relationship with government?

Okay, but let's get to the substance. Is there any evidence whatsoever that this antagonism is "affecting hiring and other business behavior?"

If the antagonism was affecting hiring, then we would expect to see firms increase the length of the average workweek as they worked their existing workforce longer hours rather than take on new workers. There is zero evidence of this. The average workweek is up slightly from the low-point of the downturn, but it has been flat in recent months. It is still far shorter than it was before the downturn.

If businesses were deferring hiring then we would also expect to see them make more use of temps. Again, the data will not cooperate. Temp hiring is also up some from the low-point of the recession, but it still down more than 20 percent from pre-recession levels.

As far as the "other business behavior," investment, which is the one we most care about, has actually been pretty healthy in the last few quarters. Investment in equipment and software has grown at nearly a 20 percent annual rate over this period. Investment in structures has been plummeting, but this is to be expected given the huge overbuilding in most categories of non-residential structures.

So, businesses are unhappy but it doesn't seem to be affecting their economic behavior, even though it may affect their pattern of campaign contributions. The obvious answer is buy them all lollipops and move on to more serious issues.

 

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If a member of Congress shows that he doesn't know the basics of the government's most important social program then this makes a good news story, with a headline like "Congressman Ignorant of Basic Facts on Social Security." However, in the Washington Post, a member of Congress can say any loon tune thing they want about Social Security and have it treated as a reasonable comment.

Hence we are given without comment a quote from Republican Representative Tom Price:

"The American people know that the current Social Security program will not survive based upon current rules."

This is a larger gaffe than almost anything the Post has written on from a politician. It would be comparable a politician insisting on his commitment to ending the war in Vietnam, thereby demonstrating his failure to recognize that the war had been over for 35 years.

Of course Social Security will survive just fine based on its current rules. According to the Congressional Budget Office the program can pay scheduled benefits for the next 29 years with no changes whatsoever. It could always pay a far higher benefit than what current retirees receive even if no changes are ever made. If changes comparable to those put in place by the 1983 Greenspan Commission are put in place it would be able to pay full scheduled benefits well in the 22nd century.

At one point the article refers to the interest of President Obama's deficit commission in "reducing benefits for wealthier retirees." It would have been worth reminding readers that "wealthier" in this sentence refers to people like school teachers and firefighters, not the sort of people who are generally viewed as wealthy.

The article also reports the view of Erskine Bowles, the co-director of the commission and a board member of Morgan Stanley, that the size of government should be limited to 21 percent of GDP. It would have been useful to point out to readers that Mr. Bowles apparently believes that we should slow growth and kill jobs to keep government to some arbitrary size cap. By contrast, most other people believe that the services that can be provided most efficiently by the government should be provided by the government.

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